Working paper,1990, presented at Transportation Research Board Annual Conference, 1990
and later published in Transportation Quarterly, Vol. 46, No. 1, January 1992
Measuring Economic Development Benefits for
Highway Decision-making: The Wisconsin Case
GLEN E. WEISBROD AND JAMES BECKWITH
Mr. Weisbrod is Senior Vice President of Cambridge Systematics, Inc. He specializes in evaluating
economic development impacts and finance of transportation projects, including highways, public transit
and airports. These include projects in the Netherlands, Japan, Great Britain and Finland, as well as for
many states in the United States. Mr. Weisbrod holds an MCP in City Planning and an MS in
Transportation from the Massachusetts Institute of Technology and a BA in Economics from Brandeis
University. He is a member of the Board of Directors of the National Council for Urban Economic
Development and the TRB Committee on Social and Economic Factors in Transportation.
Mr. Beckwith is Chief of the Office of Light Rail for the Wisconsin Department of Transportation and
Project Manager of the light rail study in Milwaukee. Previously Mr. Beckwith served as Chief of the
Statewide System Planning Section, and in this position managed the Highway 29 Corridor Study for the
Department. Mr. Beckwith holds a BS in Civil Engineering and a BS in City Planning both from the
University of Wisconsin. He is a Registered Professional Engineer in Wisconsin and a member of the
American Society of Civil Engineers.
|
This article examines issues involved in measuring and evaluating economic development impacts
of major highway investment, and application of those findings for investment decision-making. It
focuses on a proposed highway construction project to create a 200 mile four-lane highway across
North-Central Wisconsin. This corridor would provide a major east-west link from Green Bay and
Appleton on the east to Eau Claire and Chippewa Falls to the west where the route intersects with
I-94 and continues on to Minnesota (see Figure 1). The study evaluated five alternative levels of
improvement for the Highway 29/45/10 Corridor, ranging from a two-lane arterial to a full
freeway. The alternatives are described further in Table 1.
A major motivation for considering the highway improvement was the belief, promoted by
community and business leaders, that a high-quality four-lane highway connecting cities across the
corridor could significantly enhance economic growth in the region. It was generally felt that
unless highway improvements to the corridor were evaluated in terms of long-range economic
development potential, the benefits of the corridor improvement would be underestimated.
At the state level, there was also interest in using transportation investments to promote economic
development objectives. The Wisconsin Department of Transportation was very interested in
expanding its cost-benefit analysis to include not only benefits to the user, but also benefits to the
economy. Accordingly, the department commissioned a study to assess potential long-term
economic development benefits of building a new major four-lane facility across the state.
The most notable aspect of this study is its breadth. The analysis process included an integrated set
of simulation and forecasting models of the economy and the transportation network to evaluate
1
FIGURE 1. HIGHWAY 29/45/10 LOCATIONS. See Table 1 for explanation of route alternatives.
TABLE 1-DESIGN CHARACTERISTICS OF HIGHWAY ALTERNATIVES
Two Route Alternatives
most
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study29is(Eau
its breadth.
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to Appleton)
ofconnecting
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models of the economy and the transportation network to evaluate
Highway
29.
potential
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· 29/10 Upgrade Replacement -highway
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andprojecting
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focused
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estimating
impacts on expansion of existing business, attraction of
connecting
Highway
29 via
51 freeway.
new Design
business,
andAlternatives
tourism growth. Specific attention focused on providing a rigorous framework
Five
Level
for benefit assessment that avoids double counting, a typical problem of economic impact
· Freeway- A full 4-lane, limited access divided highway, meeting interstate highway standards and
assessment.
In addition,
was
given
to of
providing
a methodology
for estimating
therefore eligible
for a 65attention
mph speed
limit.
Most
the freeway
would be constructed
on new alignment in
transportation
and
economic
impacts
that
adequately
recognizes
implications
of business
order to bypass built-up areas around all communities.
efficiency benefits, a shortcoming of some prior economic assessment studies.
· Freeway/Expressway I-About 35% of the finished highway would be constructed as 4-lane "freeway; ' the
rest would be constructed as "expressway." The major difference between expressway and freeway design
This
article
provides an
overview
how economic
impacts
wererequiring
measured,
analysis
is that
an expressway
allows
some of
at-grade
intersections
rather than
thatdescribes
all access the
to the
highway
modeling
techniques
used
and
shows
how
benefit-cost
analysis
was
applied
for
highway
be through interchanges. (Later upgrading of the highway
and intersections would be possible.) Under
investment
decision-making.
current law,
the speed limit for a freeway/expressway combination would be 55 mph.
· FreewaylExpresswayII-The primary design difference between this and the previous alternative is fewer
interchanges andREVIEW
more at-grade intersections with other public highways. About 15% of the finished
LITERATURE
highway would be constructed as 4-lane freeway; the rest would be constructed as 4-lane "expressway."
(Later evaluating
upgrading of
the highway
and intersection
would
be possible.)
Before
economic
impacts
of proposed
highway
projects, it is important to understand
·the
Base
Case -The
parallels
the department's
normal
improvement
schedule
by
limitations
of base
priorcase
research
studies
on this topic.
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a major aspect
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thehighways
economic
proposing
4-laneissections
onlyhave
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on strictly
traffic capacity
needs.
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alternative,very
about
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literature
that there
been several
discrete
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of research,
addressing
35%
of
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corridor
highways
would
be
4-lane
by
the
year
2000.
different sets of issues. Overall, they provide only limited guidance for local economic
·development
No Build-This
alternative represents the point of reference against which to measure the additional costs
evaluations.
and benefits of each of the four above alternatives. It represents maintenance of the highway segments at
their current 2-lane design.
2
potential impacts of this major highway investment. In addition to projecting benefits to auto
travelers, the study focused on estimating impacts on expansion of existing business, attraction of
new business, and tourism growth. Specific attention focused on providing a rigorous framework
for benefit assessment that avoids double counting, a typical problem of economic impact
assessment. In addition, attention was given to providing a methodology for estimating
transportation and economic impacts that adequately recognizes implications of business
efficiency benefits, a shortcoming of some prior economic assessment studies
This article provides an overview of how economic impacts were measured, describes the analysis
modeling techniques used and shows how benefit-cost analysis was applied for highway
investment decision-making.
Literature Review
Before evaluating economic impacts of proposed highway projects, it is important to understand
the limitations of prior research studies on this topic. In fact, a major aspect of the economic
impact literature is that there have been several discrete directions of research, addressing very
different sets of issues. Overall, they provide only limited guidance for local economic
development evaluations.
For instance, one set of research studies has shown the relationship of national highway
investments to reducing shipping costs and increasing business productivity.' These studies
generally find evidence, through national time series statistics, of increasing business productivity
over time associated with reducing shipping costs as a result of upgrading the national highway
network. Such findings, however, are not transferable for evaluation of specific individual highway
improvements, where geographic differences in travel patterns and economic patterns become
important considerations.
Another set of economic modeling studies analyzed the relationship of highway locations to
nearby business growth patterns.2 There have also been case studies that have attempted to
document shifts in business growth patterns associated with specific new freeways.3 Most of these
1. Theodore Keeler, "Public Policy and Productivity in the Trucking Industry," American Economic Review 76 (1986):
153-158; Ann F. Friedlaender, The Interstate Highway System, (North Holland Press, 1965); and A.F. Daugherty et
al., "An Economic Analysis of the Cost and Production Structure of the Trucking Industry," in A.F. Daugherty, ed.,
Analytic Studies in Transport Economics (Cambridge University Press, 1965).
2. Curtis Harris, Regional Economic Effects of Alternative Highway Systems (Ballinger Brooks, 1974); Jack Faucett
Associates, Regional Economic Effects of Highway Investment--A Case of the Interstate System (1971); Karen
Polenske and P. Levy, Multi-Regional Economic Impacts of Energy and Transport Policies (Office of Transport
Planning Analysis, 1975); and Benjamin H. Stevens et al., Regional Economic Analysis for Transportation Planning,
NCHRP Report 8-15A, Regional Science Research Institute, 1982.
3. Gale Lang et al., "A Corridor Land Use Study: The Impact of an Interstate Highway on Land Values, Private
Investment and Land Use in Southwestern Wyoming" (University of Wyoming, Laramie, 1970): Robert D. Sanders,
The Economic Impact of Interstate Highway 35 on Towns in North Central Oklahoma (Oklahoma Department of
Highways, 1973); and Robert W. Vockrodt, The Economic Effects of Interstate 94 on Truck Highway 10 Communities
(Minnesota Department of Highways, 1972).
3
studies occurred a decade ago, and found very mixed evidence concerning whether or not there is
any statistical or causal relationship between regional economic growth and highway
improvements. They generally conclude that many other local factors besides highway
improvements come into play to affect regional growth. Thus, all that can be concluded from these
studies is that a new or substantially upgraded highway may or may not have economic impacts,
depending on where it is located and the intercity connections it provides.
Discussions with business executives who make location decisions, and economic development
professionals involved in trying to attract businesses, however, provide evidence that highway
issues are prominent in the expansion and location decisions of many firms. Surveys of corporate
executives by Dow Jones & Co. and Site Selection magazine, for instance, have consistently found
highway access to be one of the top three locational considerations for corporate headquarters,
regional offices, research and development facilities, manufacturing plants and distribution centers.
Overall; past research provides backing for the assertion that major highway improvements can
have significant economic development benefits, although the magnitude of those benefits will
vary depending on the particular setting and types of highway improvements being considered.
Economic Development Benefits
Whenever a section of highway is improved, individual auto and truck travelers benefit in terms of
travel time, transportation cost and accident reduction. These are the direct user benefits, which
have been the traditional means of determining benefits of a highway project. Direct user benefits
for trucking can translate into real dollar savings for businesses that ship items by truck. However,
highway improvements can have a significant impact on the corridor and state economy, over and
above direct user benefits. Specifically, by reducing truck shipping costs, a very real efficiency
benefit can accrue to the business shipping out the product, and a potential cost savings can accrue
for the business receiving the product. Cost savings can mean lower product costs, which in turn
can make local area businesses more competitive compared to their outside competition, and better
able to expand to new markets.
In addition to the business expansion benefit related to trucking cost savings, highway
improvements can extend the market area that businesses can serve, as well as the areas from
which they can access suppliers. They can extend the distance range accessible within a day's drive
for truck deliveries or customer visits. They also can extend the distance range over which local
businesses effectively compete with their counterparts located out of state (and vice versa). The
extent of such benefits depends critically on the relative locations of business buyers, suppliers and
competitors. These travel range impacts can provide opportunities for significant expansion and
attraction of manufacturing and distribution industries. Consumer market areas for retail and
service businesses are also affected by changes in effective trade areas, but those effects tend to be
merely localized shifts in retail activity rather than true gains for the region and state as a whole.
There can be additional impacts on the attraction of new business. In the case of the Wisconsin
Highway Study, some types of businesses would find the corridor to be an attractive location if it
were not for its lack of a four-lane, east-west highway. Some businesses not previously attracted to
the area could also be lured if they were to see the area upgraded to be fully served by four-lane
freeway or expressway facilities, providing fast and reliable transportation links to the national
4
highway network, regional population centers and specific buyers or suppliers. Improvements to
this particular corridor could also enhance the perception that North-Central Wisconsin is an
attractive place to live and locate a business. These types of impacts of highway upgrading are
over and above incremental effects of travel time savings alone.
Some types of businesses could find the proposed highway improvements to be necessary but not
sufficient to attract them to the area. Some businesses could be attracted to the area if the highway
improvements were to be accompanied by other economic incentives and/or public improvements,
as part of an effort to address a broader set of what those businesses see as local or regional
deficiencies in resources and services available. For this reason, the economic attraction benefits of
each alternative must be viewed in the broader context of existing marketing and business
development efforts at the local, regional and state levels.
Tourism-related business is a special type of opportunity, whereby passenger travel benefits can
lead to additional visitation to the state. For instance, given the location of Highway 29, four-lane
improvements to it can provide a particular opportunity to make vacation and recreation areas
along the Lake Michigan shore more accessible and attractive for Minnesota residents. The easier
and more relaxed quality of travel experience along a four-lane freeway or expressway, in addition
to safety and travel time benefits, can affect these tourism and recreational travel patterns.
The economic development effects of highway improvements do not end with the direct effects on
business expansion and attraction. There are also very significant spillover effects on the rest of the
area economy. The direct effect on business expansion and attraction leads to indirect effects in
terms of additional orders for materials and equipment from other businesses. For instance,
expansion of the food processing industry would lead to expanded orders for plastic packaging and
cardboard boxes. In addition, there are induced effects that result when new and expanding
businesses hire more workers, who then spend money on consumer products and services.
While businesses within the highway corridor study area are the principal beneficiaries of the
direct benefits, the spillover indirect and induced business growth can provide very real benefits
for the rest of the state.
Appropriate Measures of Benefits
Economic growth can be viewed as bringing more business sales, more jobs, more personal
income and more population growth to the state. Such economic growth is publicly perceived as
desirable insofar as it leads to greater employment opportunities, greater variety of shopping
merchandise and cultural activity, higher income levels, a more vibrant atmosphere for private
business investment and greater public resources for investment in local infrastructure.
Impacts can be measured in terms of jobs, business sales or personal income. For cost-benefit
analysis of Wisconsin highway projects, the disposable personal income measure is the
appropriate measure of benefit for Wisconsin residents. The business sales measure includes
benefits that go to out-of-state residents. For instance, fuel sales include the cost of Middle Eastern
and South American petroleum. Personal income includes only the additional income to Wisconsin
residents involved in the local sales, distribution or manufacturing of the product. Disposable
5
income further deletes the portion of personal income that is paid out in taxes, the majority of
which goes to the federal government.
There are other financial impacts of economic growth in addition to those associated with job
creation, business sales and personal income. Economic growth can also lead to impacts on
investment in industrial, commercial and residential land development, and hence property values.
It would also be expected to bring about changes in local government revenues and expenses.
These types of impacts tend to vary considerably by locality. Major new highway facilities and
changes in economic growth can also bring localized changes in environmental conditions and
quality of life, as a result of shifts in traffic patterns, shifts in shopping patterns and shifts in land
use and development patterns.
While highway projects can provide potential benefits for many different groups, and those
benefits can be seen in many different ways, it is not appropriate to consider all of these different
forms of benefits in a cost-benefit analysis, since it would be double counting to add together what
are really the same fundamental benefits showing up in several different ways. For instance,
property value increases can be the direct result of business growth and the increasing demand for
property. Business growth changes, in turn may be partly the result of changes in relative business
cost, which in turn may reflect changes in travel time and operating cost.
For this study, all user benefits associated with trucking travel time, cost and safety improvements
are incorporated in the measures of impacts on business expansion and attraction, and resulting
disposable personal income benefits to state residents. The economic benefits are, in fact, greater
when measured this way than when accounted for as simple user benefits. In the economic model,
the additional income associated with business expansion is itself greater than the direct value a
user benefits for existing truck travel. Similarly, the additional income associated with new
business attraction is greater than the direct value of user benefits associated with the induced
increment of truck travel.
For purposes of completeness in the cost-benefit analysis, all impacts related to value of time
savings, out-of-pocket costs and safety for auto travelers are also calculated, but no economic
development benefits are calculated beyond the user benefits. All economic benefits in the costbenefit analysis are presented in terms of the discounted present value of the stream of additional
disposable income over the 1990-2020 period.
Analysis Methods
Evaluation of economic development benefits involved several analysis techniques:
· a computerized traffic simulation model of the entire state, sensitive to traffic distribution
impacts and measurement of savings for area travelers;
· a detailed economic forecasting and simulation model of the study area and state economy,
sensitive to business growth impacts of changes in transportation costs;
· an industry "screening" analysis process for identifying new business attraction impacts,
sensitive to transportation impacts on interindustry sales and supply patterns; and
· a tourism market forecasting process, sensitive to relative differences in travel time among
competing areas.
6
The integrated design of the traffic and economic model system used in this study is of particular
note. A highway network model was used to estimate impacts on traffic, distribution and travel
times. These travel time changes were then input into the economic simulation model to estimate
long-term impacts on population and employment growth. The forecast changes in population and
employment were, in turn, used to estimate future changes in passenger and truck traffic for the
highway model. This ability for interplay of traffic and economic models provided a means for
ensuring consistency and recognizing interrelationships between traffic and business growth
impacts. The transportation and economic models as well as the methodology for applying these
models, and the analytic processes used for business attraction and tourism forecasts are discussed
below.
Transportation Model
User benefits refer to the savings in travel time and out-of-pocket cost and safety associated with
highway improvements. User benefits traditionally have been calculated for both autos and trucks
and then combined to provide a total measure of direct benefits. For this study, however, truck
benefits were separated from auto benefits and included as a basis for analysis of some economic
development benefits, in the form of business expansion and new business development. Although
trucking cost savings were initially estimated using the traffic model analysis of benefits, they
were used as an input into the economic impact model, rather than being directly used in the costbenefit evaluation.
Estimation of user benefits for each highway alternative was based on the output of a trip
generation and route assignment travel model. The basis of the traffic forecasting was an urban
transportation planning system network representation of the current and expected future statewide
highway system. Using origin-destination studies and traffic counts, these models simulated
current traffic volume and travel patterns. Population and employment projections were used to
forecast trip patterns and future traffic separate from any improvements to the corridor. Once no
build conditions were estimated, the models simulated new traffic and travel patterns expected
under each improvement alternative. In addition to the increase in normal traffic growth (expected
from changes in population, employment and auto use), the models were used to estimate how
alternative highway improvements would attract trips from nearby routes, thus further increasing
traffic volume.
The assignment of traffic onto the most efficient route linking origins and destinations on the
system produced a different distribution of trips for each alternative. With each successive level of
improvement, the corridor was forecast to attract more and more traffic from other routes
previously used by travelers. Figure 2 shows how each higher improvement level extends the area
of influence (i.e., area of origins and destinations for which it would serve) of the improved
highway.
7
Figure 2. Highway 29/45 corridor area of influence
The end product of the simulation process of all highway use was an accumulation of all highway
use assigned to individual portions of the statewide highway network. Based on these assignments,
miles traveled and hours spent were totaled for trips between all locations on the network. These
miles and hours were related to safety, time, and operating costs and thus used as the foundation
for calculating auto and truck user benefits for each improvement alternative.
Automobile user benefits were calculated assuming a value of time of $7/hour passenger vehicles,
and value of accident reduction based on "willingness to pay" studies sponsored by the Federal
Highway Administration and conducted at the Urban Institute. Results of the auto user benefit
analysis showed that a freeway produces the greatest absolute benefits, as time savings and
accident reduction benefits more than offset the growing operating costs that result from higher
speeds on the freeway.
8
Economic Model
Direct truck cost savings can lower business cost of acquiring supplies and/or distributing
products, thus making local businesses more cost competitive and able to expand relative to out-ofstate competition. This impact is estimated by examining current relative costs of doing business in
the study area compared to elsewhere (for each industry), and by considering how reductions in
relative business costs lead to expansion in relative rates of business growth (for each industry).
Traditional economic analysis techniques fall short here. The traditional approach uses an inputoutput model to estimate indirect and induced growth of the area economy, given a direct change
in jobs and business sales that the highway creates. What it does not predict is how highway
improvements will change the competitive position of different types of businesses, and how that
competitive change will directly affect future business growth. To address such issues, the regional
economic forecasting and simulation model (Regional Economic Models, Inc.-REMI) was created.
The Wisconsin Forecasting and Simulation Model is a statewide REMI model used for the past
several years by the Wisconsin Department of Development. A special multi-area version,
specifically designed for counties within the study area, was applied for this study. Essentially, the
model predicts, for each year in the future, the number and distribution of income, output and
employment in each substate area for each industry sector and each occupational category.
Sub-state areas are defined as five sub-zones within the project study area, plus a sixth zone
comprising the rest of the state. The REMI simulation model and conjoined input-output model
provides information on business output and employment in terms of 490 detailed industry sectors
and 94 detailed occupational categories. The model process is outlined in Figure 3. One basis for
the REMI model was a set of information on the specific industrial structure of the state in terms of
inter-industry purchasing patterns. This is the information that comes from input-output accounting
tables, which trace the extent to which each industry sector generates demand for inputs from other
sectors. The REMI model, however, goes far beyond simple input-output accounting by
incorporating information on a large number of policy-sensitive economic factors and
relationships, in terms of how they change the region's economic growth or decline by industry
sector. They include effects of transportation costs, as well as costs of labor, equipment, materials,
capital financing and taxes.
In each case, the REMI model evaluates cost of doing business for each industry sector, comparing
costs for businesses within the study area with costs for similar business located elsewhere.
The forecast of future business growth and decline in each area is then made on the basis of (1)
national forecasts for change in each business sector and their technologies of production; (2)
differences in relative costs of production in each business sector within the study area, compared
to elsewhere in the nation; (3) expected change in transportation and production cost in each
business sector resulting from the highway projects; and (4) expected change in attraction of
business from out of state, and tourists from out of state.
9
Figure 3. REMI forecast
National Forecast
Industry Growth/Decline
National
Data
Wisconsin
Economic
Mix
Wisconsin
Performance
Relative to US
I-O
Related
Analysis
Wisconsin Economic Structure:
Import, Export, Inter-Industry Flows
Structural
Policy Model
Relative Cost of Doing Business:
Affecting Economic Growth
IMPACT FORECASTS
10
• Fuel
• Taxes
• Capital Costs
• Labor Costs
• Transport Costs
• Labor/Capital Intensity
ANALYSIS METHODOLOGY AND FINDINGS
Economic impacts of highway improvements could be increased or lessened by future changes in
the area's business mix, which will affect relative reliance on trucking. In addition, economic
impacts could also be affected by future changes in technologies affecting interindustry shipping
relationships.
For the study area, the REMI forecasts indicated that output of three major industries-paper, food
products and health care-will grow at a slower pace and actually decline in employment compared
to the past decade. These patterns, which hold for both the study area and the rest of the state, are
due, in part, to the expected slowdown in the rate of growth of the state's population and economy.
They are also due to forecasts of continued technology change, raising the output per employee
over the long-term 1986-2020 period. In fact, both the paper and food industries are also
undergoing significant changes in product mix. In the paper industry, converted paper products are
forecast to grow, while production of paperboard containers are not. In the food industry, frozen
foods are forecast to grow, while output of dairy products are not. These changes in industrial mix
were forecast to have a bearing on highway impacts because surveys showed that each type of
industry had a very different shipping pattern.
In order to estimate the magnitude of trucking-related benefits to business, a three-step process was
used. The first step was to conduct a series of surveys to profile truck shipping patterns and current
truck reliance on Highways 29, 45 and 10. The next step was to estimate the business cost savings
of proposed highway improvements, based on truck shipping patterns and the cost structure of
different types of businesses. The final step was to estimate impacts of these cost savings on
business expansion rates. This process made use of the REMI economic forecasting model, which
relates changes in business costs of truck shipments to competitive cost of doing business,
comparing businesses in the study area, rest of the state, adjoining states and rest of the country.
A mail-back survey of area firms provided information on the overall pattern of truck trips
originating in or destined for locations within the study region. The survey showed differences in
industry supplier-buyer locations among types of businesses, and these were reflected in their truck
shipping patterns. These patterns of interstate travel are shown in Figure 4 for four major industries
in the study area. The survey also showed systematic differences in truck shipping patterns among
sub-zones of the study corridor (see Figure 5).
11
Figure 4. Inter-state trucking patterns for selected industries by zone of origin/destination
Figure 5. Intra-state trucking patterns (all industries) by zone of origin/ destination
12
The cost savings for truck movements was then calculated on the basis of changes in travel time
and operating costs for current users, forecast new users and diverted trips under each highway
improvement alternative.
The effect of a truck shipment cost savings on the competitive position of businesses depends on
the importance of truck costs as a component of the total cost of doing business. There are many
components of overall business cost, including labor, capital equipment, utilities, depreciation,
financing costs, etc. Truck shipping costs include costs of businesses purchasing services from the
trucking industry and costs of businesses doing their own shipping (including truck driver labor
costs). Businesses found to be most sensitive to truck shipping costs are trucking firms, petroleum
product firms, and paper manufacturers.
The overall economic impacts reflect expansion of businesses benefiting from trucking cost
savings (direct effects), plus expansion of their business suppliers (indirect effects) and expansion
of other businesses receiving additional worker spending (induced effects). While the directly
benefiting businesses are largely manufacturing, distribution and trucking firms, the indirect and
induced benefits also involve retail, wholesale and service businesses.
The analysis of truck travel concluded that total benefits to existing business are greater for
freeway and freeway/expressway alternatives than for the base case. However, improvements
beyond the freeway/ expressway II alternative yielded no further increase in truck cost savings,
because the time savings from further speed increases were cancelled by the lower fuel economy
and higher vehicle operating costs that occur when trucks travel faster than 55 mph.
Business Attraction Impacts
While trucking cost savings themselves can lead to business growth, there are other ways in which
highway improvements can affect the attractiveness of the corridor as a place to do business. The
area might become more attractive to new businesses because of the geographic positioning of the
highway relative to locations of particular population centers, suppliers or buyers (both in-state and
out-of-state), providing special opportunities for particular combinations of industries to better
support each other and take advantage of emerging technologies or provide new products, or its
impacts through improving the perceived quality of life of the region served. These are additional
business attraction impacts, over and above the truck cost saving impacts.
Estimation of the impact on business attraction of the proposed improvements to Highways 29 and
45 required a three-phased methodology. First, a list of industries compatible with the corridor
economy and resources available was compiled. Second, characteristics of those industries-and the
comparative cost of business operations in Wisconsin and the corridor-were evaluated to determine
whether or not these types of businesses would find the area cost competitive to be attracted to the
region. Third, business attraction and job creation potentials were distinguished in terms of
whether they required:
1. only highway improvements to be made;
2. other economic development or business attraction factors aside from highway
improvements; or
13
3. both highway improvements and attention to other economic development or business
attraction factors.
As a first step in identifying industries that might be attracted to the study area as a result of the
highway improvements, economic development agencies and chambers of commerce within' the
study area were contacted. These organizations were asked to list current business attraction
targets and reasons for these targeting efforts. To further identify industries that might be attracted
as a result of the highway improvements, the existing economic base and regional characteristics
were examined to identify potential linkages between existing industries, natural resources,
universities and technical schools, labor force, etc., and industries that are currently not located in
the study area. In addition, interviews were conducted with representatives of individual
businesses and trade associations to identify the most important locational characteristics
considered when making facility location decisions. These industry specialists were further asked
to evaluate the importance of highway access to their location decisions, and the appeal of central
Wisconsin locations.
The competitive position of the corridor study area for attracting target industries was also
evaluated in terms of relative costs for fuel, capital and labor in the study area, compared to the
same cost factors for the rest of Wisconsin, Minnesota, and the United States as a whole. The
existing concentration of each industry in the study area was also compared to the concentrations
in those comparison areas. This was used to identify the types of businesses thriving nearby,
although currently underrepresented in the study area. Finally, because highway improvements
would improve accessibility through the region, potential negative impacts of businesses attracted
out of the region were also taken into account.
The analysis concluded that the greatest business attraction expected to occur as a direct result of
the highway improvements was in the Northeast area of the corridor, followed by the Central and
East (Fox Valley) areas. Essentially no further business attraction benefits were expected for the
West or Lakeshore areas. Key beneficiary businesses were forecast to be specialized paper
products, printing, food products and wood products.
Compared to the full freeway, the two freeway/ expressway alternatives and the base case were
found to have a lesser benefit, since both have at-grade intersections, foregoing the "interstate
quality" freeway access that some businesses look for in their location decisions.
The business attractive analysis concluded that while highway improvements alone can enhance
the attractiveness of the region to attract investment for business location and expansion, these
positive impacts can be even larger if coupled with business marketing and economic development
programs.
Tourism Benefits
Business impacts of the proposed highway improvements will extend beyond trucking firms and
businesses that ship or receive goods by truck. In fact, one industry that is expected to be a major
beneficiary of any of the proposed highway improvement alternatives is the tourism industry,
which serves both business and recreational travel.
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Tourism benefits occur insofar as the highway improvements lessen travel time, reduce safety
hazards and make travel more enjoyable for trips to various tourist destinations and recreational
attractions within Wisconsin. Tourism benefits occur principally due to greater visitation and
spending by out-of-state visitors. Shifts among in-state visitor destinations are of no economic
benefit to the state. .
The methodology for deriving the impact of proposed highway improvements on tourism included
two key steps. The initial part of the tourism impact analysis was to estimate baseline tourist and
visitor activity in the area. Baseline data was then refined to estimate the number of visitors to each
zone that used Highways 29, 45 and 10. Visitor spending associated with use of these highways
was calculated based on prior surveys of typical spending levels by different types of visitors.
The second part of the analysis was to determine the potential impact on visitation patterns
resulting from the proposed highway improvements. The findings drew heavily on responses to
interviews with owners and managers of hospitality, tourism and recreation businesses and
promotional organizations within the study area. It drew upon their own evaluations of existing
and potential market attraction characteristics, competitive position relative to competing
attractions, travel distances and spending patterns.
The assessment distinguished new tourist trips generated or attracted from out of state, and new
tourist trips which are merely transfers of trip destinations from one part of Wisconsin to another.
Overall, the study concluded that the Lakeshore and Northeast areas would be expected to realize
the greatest absolute increase in visitor days and dollars spent by tourists. The concentration of
tourism impact on these two regions occurred because both have major regional and super-regional
tourist destinations with the potential to attract additional visitors from the Twin Cities and the rest
of Minnesota.
OVERALL BENEFITS AND COSTS
The cost-benefit evaluation is a comparison of benefits and costs associated with each of the four
highway improvement alternatives, relative to the no build scenario. The comparison is made in
terms of net benefit (defined as benefits minus costs) and B/C ratio benefits divided by costs).
The set of costs considered for each alternative include estimates of all right-of-way acquisition
and construction-related costs plus all ongoing rehabilitation and maintenance costs. The set of
benefits considered include user benefits to auto travelers plus estimates of long-run (after
construction) economic development impacts, including those resulting as an outcome of truck
user benefits:
Construction period benefits are explicitly ignored for purposes of the cost-benefit analysis, due to
the nature of the investment decision-making. Highway construction expenditures associated with
the project provide very real benefits in terms of business sales, income and jobs created.
However, these dollars are assumed to be funds that would have been spent anyway by state
government-if not on this project, then on other highway or public works investments with
comparable capital expenditure benefits. For this reason, the short-term benefits associated with
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construction spending are not relevant as additional benefits for purposes of ranking the project
alternatives.
The long-term transportation efficiency and economic development benefits associated with the
project are measured by comparing statewide levels of income and jobs that would exist with and
without each of the alternatives for proposed highway improvements. This is a clear and
straightforward way of assessing project impacts on the state economy. The streams of benefits
and costs over time are assessed in terms of their "present value," which discounts benefits and
costs expected to occur further off in the future.
Another issue, which can then be raised, is whether funding of the Highway 29/45/10 project
actually causes other socially beneficial but competing projects (or other public expenditures) to be
foregone. If so, it could be argued that the potential benefits of those foregone projects represent an
additional "opportunity cost" associated with the Highway 29/45/10 project. In fact, it is clearly
premature and inappropriate to guess how the proposed project will be financed, whether it be
federal grants or new taxes or allocations from existing departmental budgets or other sources.
Hypothetical competing alternatives need not be considered if the study objective is to evaluate
highway improvement alternatives relative to each other, and not relative to all possible alternative
expenditures.
Project Benefits
Economic development benefits are classified in terms of business expansion induced by cost
savings, additional business attraction and increased tourism. User benefits for truck users are not
counted in this benefit assessment since they are encompassed within the greater measure of
business expansion benefits. Auto user benefits are estimated on the basis of a valuation of travel
time savings, operating cost changes and accident rate reduction benefits.
The present value of all economic development and auto user benefits (compared to the do nothing
alternative) is shown in Table 2. There are several notable aspects of these numbers and their
components. One is that economic development impacts account for roughly half of the total
benefits. (It varies from 42 percent to 52 percent depending on the highway improvement
alternative.) This is particularly notable since trucks account for just 20 percent of the traffic on
Highways 29, 45 and 10.
A second observation is that the spread in economic development benefits between the freeway
and base case alternatives is nearly twice as large as the corresponding spread in auto user benefits
for the same alternatives. There are several reasons for this. One is that the computation of
economic development benefits includes a large reduction in industry and tourism attraction for the
base case alternative where less than a fully four-lane expressway is provided. The other is that
auto user benefits do not increase proportionally to speed increases and travel time savings for the
higher level improvement alternatives, due to offsetting impacts of greater fuel consumption and
increased auto operating costs at higher speeds. In fact, the penalty of higher operating costs at
higher speeds causes the freeway/ expressway I alternative to have slightly lower auto user
benefits than the lower speed freeway/ expressway II alternative.
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TABLE 2-PRESENT VALUE OF COSTS AND BENEFITS OF HIGHWAY
IMPROVEMENT ALTERNATIVES
(Present value of 1990-2020 Disposable Income Benefits in Millions of 198'7
Dollars, Compared to the "No Build" Alternative)
Freeway/ Freeway/ Exprezs- Base
Freeway Expressway way 11 Case
Costs
Present value of total cost
29/45
(Compared to no build)
29/ 10
Economic development benefits (trucks)
(disposable income value)
Expansion due to truck cost savings
29/45
29/10
Additional industry attraction
29/45
29/10
Increased tourism
29/45
29/10
Subtotal: economic development benefits 29/45
29/10
Auto user benefits (autos only)
(income equivalent value)
Value of auto travel time savings
29/45
29/10
Change in auto operating costs
29/45
29/10
Value of auto accident reduction benefits 29/45
29/ 10
Subtotal: auto user benefits
29/45
29/10
Present value of total benefits
29/45
29/10
$550
564
$447
415
$334
337
$225
250
164
168
218
246
56
55
$438
469
164
168
164
184
42
_41
$370
393
164
168
153
172
39
_39
$356
379
131
132
55
62
14
_14
$200
208
$385
356
- 115
-116
138
146
$408
386
$846
855
$305
288
-46
-39
103
_123
$362
372
$447
765
$296
287
-13
-12
98
_107
$281
382
$334
761
$218
200
7
4
56
_67
$281
271
$225
479
Project Costs
Costs associated with each highway improvement alternative include construction costs over 19891999 period, plus rehabilitation and general maintenance costs over the entire 1989-2020 time
period. All costs are shown over and above those for the no build alternative, which includes costs
of pavement maintenance.
Benefit-Cost Comparison
Table 3 compares the benefits and costs of each of the four highway improvement alternatives for
both the 29/10 route and the 29/45 route. The benefit/cost ratio measures the efficiency of
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spending in terms of return on investment. It clearly indicates that the Highway 29/10
freeway/expressway II alternative provides the greatest benefit/cost ratio. It returns $2.30 of
benefit for every dollar spent on the highway. Of course, not all of these benefits represent dollars
added to the economy. In fact, half of the benefits from the Highway 29/10 freeway/ expressway II
alternative are in the form of auto user travel time and safety benefits.
TABLE 3--COMPARISON OF BENEFITS AND COSTS
(Present Value of 1990-2020 Benefits and Costs, in Millions of 1987 Dollars,
Compared to the No Build Alternative)
Present value of total benefits
Present value of total costs
Benefit/cost ratio
Net benefit (benefit-cost)
Freeway
Freeway
Freeway/ Express- Freeway/ Base
Expressway Way I
Express-II Case
29/45
29/10
29/45
29110
29/45
29/10
29/45
29/10
$846
$855
$550
$564
1.5
1.5
$296
$291
$732
$765
$447
$415
1.6
1.8
$285
$350
$737
$761
$334
$337
2.2
2.3
$403
$424
$481
$479
$225
$250
2.1
1.9
$256
$229
Another measure is the net benefit, calculated as benefits minus costs. The Highway 29/10
freeway/ expressway II alternative also provides the greatest net benefit, which has a present value
benefit of $424 million over costs.
Thus, the freeway/expressway II alternative for the Highway 29/10 route emerges as clearly the
most beneficial, providing greater benefits than that same alternative using the Highway 29/45
route.
CONCLUSIONS
The Wisconsin study demonstrates how economic development benefits of highway projects can
be estimated, and those estimates used for benefit-cost analysis to support policy decision-making.
The state of Wisconsin has adopted and started to implement the highway alternative
recommended by this study. However, this study also shows that a full evaluation of economic
development benefits can be complicated, requiring a set of separate analytic techniques for
estimation of impacts on relative business costs, business attraction and tourism, as well as
modeling of travel patterns and regional economics.
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